Recently I received a query on retirement and more specifically how to calculate severance payment for a person who will be retiring.
For human resource practitioners, the obvious answer to the question is that severance does not apply to retirees. To further cement this, once a person has passed the age for full eligibility to NIS pension benefits there is no severance payment even in a case of redundancy. So how then do you treat retiring workers? How does retirement work in Barbados?
Retirement is defined as the point where an individual stops employment and the first misconception that needs to be addressed is the age of retirement. Very often I receive queries on the retirement age in Barbados; however, there is no national retirement age in Barbados. Rather the National Insurance Office has established an age at which an individual can receive full NIS pension, which is outlined below:
Prior to Jan 2006 65 years
Jan 01, 2006 to Dec 31, 2009 65½ years
Jan 01, 2010 to Dec 31, 2013 66 years
Jan 01, 2014 to Dec 31, 2017 66 ½ years
Jan 01, 2018 and after 67 years
However, the National Insurance regulations do not prevent an employee from retiring before or after the age listed above. In fact, NIS allows employees to receive pension benefits from 60 years albeit a reduced amount. Alternatively, persons can delay pension receipt up to age 70 years and receive an increased pension.
In the absence of a pension plan or a company policy, employers have used the age of eligibility for full NIS pension as their retirement age.
Nevertheless, companies can determine their retirement policies and those that have pension plans should allow employees to retire when they have reached the pensionable age in compliance with their pension rules.
However, companies should note that while prior to the Occupational Pension Benefits Act, pension plans may have allowed women to proceed on retirement five years before men. This no longer applies as the act states that there should be no discrimination between the genders.
There are unfortunate occasions where retirement, ceasing employment, is not due to age but rather due to the medical incapacity of the individual. This is never determined by an employer, but by a medical practitioner.
In such circumstances the employer must receive a report from a registered medical practitioner on the employee’s fitness for continued employment. This report will be based on the employee’s work (as outlined in the job description) as well as the employee’s medical condition.
Once the medical practitioner has determined that the employee is no longer capable of performing the required duties then the employee is retired. Should the company have a pension plan, then the plan administrator will provide guidance on any payments that may be due and the employee should be directed to the National Insurance Office to inquire about invalidity or disablement pension.
Another area where misunderstanding often occurs is with the calculation of company pension where employees are made redundant, receive full severance, and are then rehired on new employment contracts. In such situations, the employees will have a new date of employment and prior service will not be included in future company pension calculations.
This occurs because the employees would have received compensation for service through the severance payment. As a consequence, while the employee may state that they have worked with the company for over 20 years, any pension benefits will only be accrued from the start of the new/second contract of employment.
Increasingly in developed countries there is the phenomenon of semi-retirement. This is where persons who have passed the “normal” retirement age continue in the workforce but with a reduced workweek.
Such a system can be beneficial to all parties: the employer can benefit from the knowledge and experience of the older worker, the older worker can continue to earn income while enjoying reduced working hours, and younger workers can gain valuable insight through mentorship.
Most persons look forward to their retirement years; however, both employers and employees should ensure that they are well informed and educated about retirement.
A general rule of thumb is that three to six months prior to retirement, the employer should indicate to the employee that their retirement is imminent and seek to ensure that company’s pension benefits are processed to allow the employee to begin receipt upon leaving the workforce. With proper planning, the retirement process can go smoothly enabling persons to enjoy their golden years.
